Contracts—better than the spoken word

Written by legal advisor Lance Guymer

Australian Owner Builders Factsheet 10 AOBFS10

In Victoria it is a legal requirement for contractors to enter into a written contract with the owner builder for all works over $5000. Many owner and small builders do not appreciate the importance of documenting agreements, changes or add-ons to building contracts or agreements. In the rush to get things done, it is often easier to say “Yeah, yeah”, and agree to variations on-site or over the phone. It is easy to get caught out and either have to pay more for a product or service or risk becoming embroiled in a lengthy and expensive dispute. The most obvious difficulty in agreeing to changes or extras without documenting them, is later proving the terms of the variations.

When a dispute arises in relation to the type and extent of the work to be carried out, the materials which were to be used or the price to be paid, it can difficult to gain consensus with a contractor or supplier who asserts differently to what you are saying. This can result in paying more than you planned or a “Mexican standoff” where a contractor withholds services or a supplier holds onto urgent material.

The last thing you need is a delay to the project which tends to snowball down the line. It is always better to document every agreement. This may seem a little time consuming, but the time pales into insignificance when compared to the time involvement of litigation.

Keeping all written quotes in a file, including notes of conversations in your diary, which will allow you to document the agreement or changes later, is always a good idea. Do not forget to give a copy of the written, mutually signed changes to your contractor or supplier.

In Victoria, for example, it is a legal requirement for contractors to enter into a written contract with the owner builder for all works over $5000. If a written contract is not entered into, the contractor, but not the owner builder, is committing an offence. While it may be tempting to not have a written contract, (there is a perception that having a verbal agreement only, rather than a written agreement, means that the risk of being sued for non payment is reduced), there are other risks to consider.

Contracts allow the owner builder to stipulate quality, performance clauses, completion dates and maintain harmony on the building site. Word will spread through the contracting fraternity very quickly if you are a non-payer. Disputes are always stressful, they can take years to sort out.

It’s in the interest of all parties to document the initial agreement, both sign it and if alterations to the original contract are necessary scrupulously document, in writing, and have both parties sign, before moving on. To do otherwise places all parties in an uncertain position when it comes time to settle the account.

There are a number of standard contracts available from various suppliers. These can be cost effective and purchased as a package.

Contracts recommended include,

Works exempted under the Act. (BS5). If the work performed covers only one type of trade. These include trades such as electricians, plumbers, wall & floor tilers, glaziers, painters, insulation/ carpet/ vinyl/security door installers who are defined as “tradespersons” under the Act.

Minor domestic building works (BS6) for works under $5000 under the Act. If the work is a part of building works such as home improvements involving more then one trade. These include all persons not exempted under the Act where their works are valued at under $5000. Trades included are carpenters, joiners, cabinet makers, bricklayers, concretors, roof tilers, bathroom & kitchen renovators, re-stumpers and door & window replacement specialists.

Major domestic building works (BS8) for works over $5000 under the Act If the work is part of building works involving more than one trade. Includes all persons not exempted under the Act where their works are valued at over $5000. All persons are to be registered with the Building Practitioners Board and where the value of the work exceeds $12,000 and are defined as “builders” under the Act and Warranty Insurance must be provided for their portion of the works.